What is the meaning of underinsured?
If your property is underinsured, it means that your insurance policy covers only a part of your total assets.
Reasons for Underinsured Homes
Reports suggest that there are several reasons why properties are underinsured. Neglect or lack of knowledge by the insurance agent, an incorrect inspection of your property, or insurance underwriting faults may result in underinsurance. Here are a few major reasons a homeowner might be underinsured:
- Value underestimation for your property
- Calculation mistake in actual construction cost
- Wrong selection of insurance sub-limits
- Lack of understanding about policy coverage
- Not reporting property upgrades to the insurer
What are some ways homeowners miscalculate home insurance?
Miscalculation of insurance needs is common for homeowners. Odds are you may not have a lot of knowledge about choosing an insurance coverage or even calculating it. Understanding your insurance could ensure better protection for your home in the future.
Most owners compromise on coverage and sub-limits to save on payments due to the increase in home insurance premiums. In doing so, they ignore the possible risk of loss to their property and belongings. Recent reports show homeowners suffer more losses because of this.
The biggest loss to homeowners in the US has been caused by wildfires, floods, hailstorms, hurricanes, and tornadoes. Climate changes have increased the risk of natural catastrophes even more. Depending solely upon federal aid during a disaster could keep you underinsured too. These federal aids might not be enough to cover the cost of your home and might not be enough to rebuild your home from scratch.
Not Tracking Construction Costs
It is advisable always to know the cost of rebuilding your home before insuring it. This should be the minimum coverage for your home insurance policy. One should always consider the rising cost of construction materials before opting for simple annual renewals of the insurance policy. According to verified reports, the estimated inflation rate for construction material stands at 3.5 to 5.5 percent every year. In this case, along with your increasing labor costs, the insurance coverage might not be sufficient if you don’t consider these changes.
Your home insurance policy should also include coverage for your belongings and household items. These could be appliances, furniture, electronics, clothes, and more. The default coverage for personal property is around 10 to 75 percent of your building cost. This can, however, be increased to your desired amount if you feel the need for the same. Otherwise, your claim could only help you rebuild your home but not compensate for your total loss.
Underinsurance against Liability
Unfortunate instances like your pet injuring someone or your tree damaging somebody else’s property fall under liability claims. Insurance policies mostly include liability claim coverage of up to $ 100,000 as standard. It is advisable to increase this amount further to be on a safer side than being exposed to additional costs later.
Actual Cash Value Insurance of Property
Actual cash value refers to the depreciated value of your property that would be considered for insurance coverage. As such, it is always in your best interest to go for replacement cost coverage in your insurance policy. There is a depreciation amount that gets deducted from your claim and affects your actual amount of insurance claim. This might not cover your loss when you rebuild your home. Even by paying a bit more premium, replacement cost coverage would save you from underinsurance.
Ignoring Insurance Sub Limits
Every home insurance policy consists of sub-limit coverage sections for specific types of losses. These should include coverage for your furniture, electronics, jewelry, or firearms. In case of any damage claims you raise for these losses, insurance companies would compensate up to the agreed sub-limits. Knowing these sub-limits helps you stay better protected against being underinsured.
Dependency on Condo’s Master Policy
Condo associations often times buy a master insurance policy to cover damages to the main structure and some common building areas. This should not be confused with sufficient coverage of your personal condominium property. Despite your fee contribution towards this coverage, damages within your individual property might not be covered by the master policy. In other words, depending upon such insurance could keep your personal property underinsured.
How to Avoid Underinsurance
The best way to avoid underinsurance for you is always to gather enough knowledge about your policy. Your bank or mortgage company should not be solely relied upon to enlighten you with the pros and cons. You are the best person to know how much you value your own property. Mere renewal of existing insurance could prove costly to you during your claims. You need to know firsthand what things are covered and excluded in your insurance. A transparent discussion with an insurance advisor goes a long way to get your property insured sufficiently. You should ask questions and get clarity about the underlying sub-limits and their coverage amounts. Inform your insurance provider of any threat to your property, like the age of your building or its proximity to the coastline. Help your provider to evaluate your insurance need for coverage correctly. This might result in paying a higher premium for your insurance. But then, being sufficiently insured can save you much more in the future. For all your insurance needs, visit us at https://www.ieuter.com/homeowner-insurance
Ieuter Insurance Group
414 Townsend St
Midland MI 48640